ETF assets size to rise from EPF's 225-bln-rupee investment in FY18

A story I wrote this week for the organisation I work for presently.

ETF assets size to rise from EPF's 225-bln-rupee investment in FY18

Thursday, Jul 27

    The assets under management in exchange traded fund schemes

of mutual funds would grow by at least 225 bln rupees in 2017-18 (Apr-Mar)

due to investments by the Employees Provident Fund, going by the data given

by Minister of State and Employment, Bandaru Dattatreya in Rajya Sabha on

Wednesday.

    The Labour Minister said the estimated investment in ETF for current

financial year was approximately 225 bln rupees and this was due the rise in

investment limit in ETFs to 15% from 10% sanctioned by the trustees of the

EFP in May this year.

    In the last two financial years, 2015-16 (Apr-Mar) and 2016-17 (Apr-Mar),

the EPFO has invested a total of 215.61 bln rupees in five ETF schemes of

three fund houses, the Labour Minister's statement showed.

    The current value of assets in 26 ETFs amounted to 387.90 bln rupees, as

of the end of last month, data from Value Research Online showed.

    Since EPF investments in equities through ETFs are long-term in nature,

the funds invested would typically still be invested in the ETFs.

    The one-year returns in these ETFs is in the range of 15-19% as of July

25, and the value of EPFO's investments would have also appreciated by at

least 15%. This would make their current contribution in ETFs' current asset

size to be nearly 60%.

    EPF investments over the last two years were the highest IN SBI Mutual

Fund's Nifty 50 ETF at 128.34 bln rupees. Other ETF schemes invested in by

EPF were SBI Sensex ETF, UTI Nifty 50 ETF, UTI Sensex ETF and Reliance CPSE

ETF (see table).

    The aggregate of the assets under management of these five ETFs as of

June end was 359.31 bln rupees, making up for over 90% of assets of a total

of 26 ETFs in the mutual fund industry.

    As per EPF's mandate, its investments in ETFs can only be in Nifty 50 ETF

or Sensex ETF. Of the 26 existing ETFs, 20 would, therefore, be eligible. But

mutual fund analysts are not sure whether EPF will diversify beyond the

select few ETFs it has invested in till date.

    The EPF is also likely to invest in any new CPSE ETF the government may

launch through a fund house in the current financial year. Till date, it has

invested in 18.08 bln rupees in CPSE ETF, which is managed by Reliance Nippon

Mutual Fund.

    The table below lists details of the ETFs where EPF has invested in the last

two years:

MF scheme           EPF's investments        Current AUM

---------           In FY16     In FY17      of scheme

                    -------     -------      -----------

                              (In bln rupees)

                    -------------------------------------

SBI Nifty 50 ETF     49.22       79.12          200.25

SBI Sensex ETF       16.55       26.91           61.74

UTI Nifty ETF         Nil        19.11           30.55

UTI Sensex ETF        Nil         6.62            9.68

CPSE ETF              Nil        18.08           57.09